Redknee Solutions Reports Fourth Quarter Fiscal 2016 Results

– Quarter Highlighted by Sequential Improvement in Adjusted EBITDA and Cash from Operations and Healthy Backlog at Quarter End of $175 Million –

TORONTO, Dec. 12, 2016 /CNW/ – Redknee Solutions Inc.  (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal fourth quarter ended September 30, 2016. (All figures are in U.S. dollars unless otherwise stated.)

 

Fiscal Q4 2016 Financial Highlights 
(Comparisons made between fiscal Q4FY2016 and fiscal Q4FY2015 results, unless otherwise noted)

 

Fiscal 2016 Financial Highlights 
(Comparisons made between fiscal 2016 and fiscal 2015 results, unless otherwise noted)

 

Fiscal Q4 2016 Operational Highlights

 

Highlights Subsequent to Fiscal Q4 2016

 

Management Commentary

“Amidst ongoing delays in customer decisions across the BSS industry that have impacted our software license sales throughout Fiscal 2016, our focus on our near-term priorities delivered sequential improvement in our financial results in the fourth quarter, highlighted by positive adjusted EBITDA of $3.0 million,” said Lucas Skoczkowski, President and CEO, Redknee Solutions Inc. “Importantly, our focus on working capital optimization and disciplined collection efforts contributed to the generation of $13.9 million in cash from operations before restructuring costs and an improvement in working capital.  We continue to win new orders, which contributed to a healthy backlog at quarter end of $175 million.”

“While we expect the challenging macro environment to continue to impact our revenue, our restructuring initiatives and ongoing cost management efforts are expected to result in significantly improved profitability next year.  Supported by the stability of the $80 million investment to be provided pursuant to our agreement with Constellation Software, we are reiterating our guidance of $15 million to $20 million of Adjusted EBITDA on $170 to $180 million of revenue.”

“Alongside our contract wins, the strength of our solutions, including the adaptability of our solutions to different types of businesses and our high level of service, continues to be recognized by the industry.  Redknee was recently named a Visionary in Gartner’s 2016 Magic Quadrant for Integrated Revenue and Customer Management and was ranked one of the top four convergent billing vendors globally in the Analysys Mason Revenue Management Systems Market Share Report, highlighting our position as a preferred provider by many CSPs around the world.”

 

Fiscal Q4 2016 Financial Results

Revenue was $40.7 million compared to $59.8 million in the same year-ago quarter. The decrease resulted mainly from the impact of lower license revenue due to delays in customer purchasing decisions and overall reduced capital and operating spending in the global communication industry, compared to the same year-ago quarter.

Recurring revenue was 63% of total revenue, compared to 54% in the same year-ago quarter.

Gross margin was $23.1 million, or 57% of total revenue, compared to $34.6 million, or 58% of total revenue, in the same year-ago quarter.   The decrease resulted mainly from lower revenue from high-margin software license deals.

Adjusted EBITDA was $3.0 million or 7% of revenue compared to Adjusted EBITDA of $7.7 million, or 13% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss was $14.7 million, or $0.14 loss per basic and diluted share, compared to a net loss of $4.4 million, or $0.04 loss per basic and diluted share, in the same year-ago quarter. Net loss included $6.2 million of restructuring costs.

Cash flow from operations was $5.4 million.  Adjusted cash flow from operations was $13.8 million (see discussion about the presentation of Adjusted cash flow from operations, a non-IFRS measure, below).

 

Fiscal 2016 Financial Results

Revenue was $171.1 million compared to $222.7 million in the same year-ago quarter. The decrease resulted mainly from the impact of lower license revenue due to delays in customer purchasing decisions and overall reduced capital and operating spending in the global communication industry.  This was partially offset by the contribution of revenue from customers obtained through the acquisition of Orga Systems.

Recurring revenue was 60% of total revenue, compared to 46% in the same year-ago quarter.

Order backlog increased 10% to $175.0 compared to $158.5 million in fiscal 2015.

Gross margin was $92.6 million, or 54% of total revenue, compared to $130.5 million, or 59% of total revenue, in the same year-ago quarter.   The decrease resulted mainly from lower revenue from high-margin software license deals.

Adjusted EBITDA was $3.5 million, or 2% of revenue, compared to Adjusted EBITDA of $34.4 million, or 15% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss was $66.9 million, or $0.62 loss per basic and diluted share, compared to a net loss of $10.0 million, or $0.09 loss per basic and diluted share, in the same year-ago quarter. Net loss for the year included $35.2 million of restructuring costs.

Total cash at September 30, 2016 was $41.7 million. Cash flow from operations was $7.4 million.  Adjusted cash flow from operations was $24.0 million (see discussion about the presentation of Adjusted cash flow from operations, a non-IFRS measure, below).

Please refer to the section regarding Forward-Looking Statements below which form an integral part of this release. These results, along with the annual audited consolidated financial statements and the Company’s MD&A, are available on the Company’s website at www.redknee.com and on SEDAR at www.sedar.com.

 

Financial Guidance

The Company reiterated the financial guidance it had previously provided for Fiscal 2017:

This financial guidance constitutes forward-looking information within the meaning of applicable securities laws and is based on a number of assumptions and subject to a number of risks. Actual results could vary materially as a result of numerous factors, including certain risk factors, many of which are beyond Redknee’s control. Please refer to the section regarding Forward-Looking Statements below. All numbers provided in this section are approximate.

 

Conference Call

The Company will host a conference call tomorrow (December 13, 2016) to discuss these results. CEO Lucas Skoczkowski and CFO David Charron will host the presentation starting at 8:30 a.m. Eastern time. A question and answer session will follow management’s presentation.

Date: Tuesday, December 13, 2016
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1 (888) 231-8192
International: 1 (647) 427-7451
Conference ID#: 4579855

The presentation will be webcast live and available for replay via either the Investors section of Redknee’s website (www.redknee.com) or http://bit.ly/2frMiTE.

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization.

If you have any difficulty connecting with the conference call, please contact NATIONAL | Equicom at 1 (416) 586-1955.

A replay of the call will be available until 12:00 midnight (EST) Tuesday, December 20, 2016.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 4579855

 

About Redknee Solutions Inc.

Redknee monetizes today’s digital world. We provide a complete portfolio of mission-critical monetization and subscriber management solutions and services that allow communications service providers, utility companies, auto makers and enterprise businesses of all types to charge for things in new and innovative ways. Redknee’s real-time billing, charging, policy and customer care offerings provide the agility and scalability to drive a unique user experience, increase profitability and support any new product or business model. Available on premise, cloud-based, or as a Software-as-a-Service, Redknee’s low-risk, flexible solutions power more than 250 businesses across the globe.  Established in 1999, Redknee Solutions Inc. (TSX: RKN) is the parent of the wholly-owned operating subsidiary Redknee Inc. and its various subsidiaries. References to Redknee refer to the combined operations of those entities. For more information about Redknee and its solutions, please go to www.redknee.com.

 

Non-IFRS Measures

The Company reports “Adjusted EBITDA”, which is not a financial measure calculated and presented in accordance with International Financial Reporting Standards (IFRS), and should not be considered in isolation or as a substitute to net income (loss), operating income or any other financial measures of performance calculated and presented in accordance with IFRS, or as an alternative to cash flow from operating activities as a measure of liquidity. The Company defines Adjusted EBITDA as net income (loss) excluding amounts for depreciation and amortization, other income, finance costs, finance income, income tax expense (recovery), foreign exchange gain (loss), share-based compensation, restructuring costs and acquisition and related costs.

“Recurring revenue,” which is not a financial measure calculated and presented in accordance with IFRS, and should not be considered in isolation or as asubstitute to revenue. Recurring revenue includes revenue fromsupport and maintenance agreements, long term service agreements, and term-based product licenses and software subscription.

“Adjusted cash flow from operations”, which is a non-IFRS measure, is defined as cash flow from operations excluding amounts for restructuring payments made in the period.

“Order backlog” relates to contractual commitments as at period end, pending to be delivered and will be recognized as revenue in future periods. Order backlogis not a financial measure calculated and presented in accordance with IFRS and should not be considered in isolation or as a substitute to revenue.

The “constant currency” presentation, which is a non-IFRS measure, excludes the impact of fluctuations in foreign currency exchange rates.  The Company calculates constant currency by converting the current period local currency financial results using the comparative period exchange rates.

Other companies (including competitors) may define Adjusted EBITDA, Adjusted cash flow from operations, recurring revenue, and order backlog differently. The Company presents Adjusted EBITDA, Adjusted cash flow from operations, recurring revenue, and order backlog because management believes these to be important supplemental measures of performance that are commonly used by securities analysts, investors and other interested parties in the evaluation of companies in Redknee’s industry. Management uses this information internally for forecasting and budgeting. It may not be indicative of the historical operating results of Redknee nor is it intended to be predictive of potential future results. See “Reconciliation of Net Income (Loss) to Adjusted EBITDA” below for further information on this non-IFRS measure.

 

Forward-Looking Statements 

Certain statements in this document may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this document, such statements use such words as “may,” “will,” “expect,” “continue,” “believe,” “plan,” “intend,” “would,” “could,” “should,” “anticipate” and other similar terminology. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Persons reading this news release are cautioned that such information may not be appropriate for other purposes. Such forward-looking statements include statements respecting order backlog contributing to increased revenue visibility for the Fiscal 2017; the impact of the challenging macro environment on the Company’s revenue; our restructuring initiatives and ongoing cost management efforts are expected to result in significantly improved profitability next year; and financial guidance for Fiscal 2017; as well as statements regarding Redknee’s future plans, objectives or performance for the current period and subsequent periods and regarding the markets for our products. These statements reflect current assumptions and expectations regarding future events and operating performance and speak only as of the date of this document. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to, assumptions respecting : (i) the conversion of sales pipeline into orders and orders into revenue based on the extent and timing of historical conversion; (ii)  the anticipated mix of the sale of products and services of the Company and associated margin being consistent with that realized in the past; (iii) the ability of Redknee to bring new products and services to market and to increase sales; (iv) the strength of the Company’s product development pipeline; (v) the estimated size and growth prospects of the markets Redknee seeks to address; (vi) the Company’s competitive position in those markets and its ability to take advantage of future opportunities in those markets; (vii) the benefits of the Company’s products and services to be realized by its customers; (viii) the demand for the Company’s products and services and the extent of deployment of the Company’s products and services; (ix) the Company’s financial condition and capital requirements; * the stability of general economic and market conditions; (xi) currency exchange rates and interest rates; (xii) capital markets continuing to provide the Company with access to capital; (xiii) risks associated with the non-completion or delay of the investment by Constellation Software Inc.; and (xiv) the risk of default by the Company under the requirements of its senior secured credit agreement and the enforcement by the lenders of their security. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: the failure of demand for Redknee’s products to develop as anticipated, the failure to obtain customer orders or meet customer requirements, the inability of Redknee’s products to perform as expected, the inability of Redknee to achieve anticipated cost savings in the time frames and to the extent anticipated, unanticipated negative impacts on customer service or product development as a result of costs savings implemented, a material adverse change in the affairs of Redknee, and the factors discussed under the “Risk Factors” section of Redknee’s most recently filed AIF which is available on SEDAR at www.sedar.com and on Redknee’s web-site at www.redknee.com. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Redknee does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

 

Redknee Solutions Inc.

Consolidated Statements of Financial Position

(Expressed in U.S. dollars)

September 30, 2016 and 2015

2016

2015

Assets

Current assets:

Cash and cash equivalents

$

37,080,510

$

55,047,577

Trade accounts and other receivables

43,209,046

67,439,885

Unbilled revenue

27,290,500

38,282,163

Prepaid expenses

2,999,539

2,535,936

Income taxes receivable

2,662,163

1,399,564

Other assets

268,929

392,195

Inventories

710,591

812,987

Total current assets

114,221,278

165,910,307

Restricted cash

4,582,293

5,972,087

Property and equipment

6,262,965

8,435,008

Deferred income taxes

1,984,479

2,086,025

Investment tax credits

355,914

351,385

Other assets

1,656,971

1,816,640

Intangible assets

35,721,065

46,362,262

Goodwill

32,271,078

32,271,078

Total assets

$

197,056,043

$

263,204,792

Liabilities and Shareholders’ Equity

Current liabilities:

Trade payables

$

14,212,869

$

9,128,710

Accrued liabilities

23,405,832

32,305,136

Provisions

21,981,367

8,772,519

Income taxes payable

724,412

2,364,983

Settlement accrual and contingent consideration

10,244,224

Deferred revenue

18,915,596

13,363,696

Loans and borrowings

50,445,790

1,800,000

Total current liabilities

129,685,866

77,979,268

Deferred revenue

639,688

870,937

Other liabilities

2,264,482

2,615,163

Pension and other long-term employment benefit plans

20,387,584

11,417,481

Loans and borrowings

54,961,066

Provisions

6,683,256

4,006,354

Deferred income taxes

687,947

Total liabilities

160,348,823

151,850,269

Shareholders’ equity:

Share capital

172,436,385

174,082,815

Treasury stock

(141,917)

(141,917)

Contributed surplus

9,812,545

7,899,360

Deficit

(133,954,043)

(67,086,722)

Accumulated other comprehensive loss

(11,445,750)

(3,399,013)

Total shareholders’ equity

36,707,220

111,354,523

Total liabilities and shareholders’ equity

$

197,056,043

$

263,204,792

Redknee Solutions Inc.

Consolidated Statements of Comprehensive Loss

(Expressed in U.S. dollars, except per share and share amounts)

Years ended September 30, 2016 and 2015

2016

2015

Revenue:

Software, services and other

$

76,116,137

$

130,179,681

Support and subscription

94,973,763

92,560,729

171,089,900

222,740,410

Cost of revenue

78,494,715

92,192,264

Gross profit

92,595,185

130,548,146

Operating expenditures:

Sales and marketing

29,513,033

34,128,382

General and administrative

30,861,909

28,364,951

Research and development

45,495,754

48,030,270

Acquisition and related costs

4,838,371

6,212,222

Restructuring costs

35,184,661

1,095,454

145,893,728

117,831,279

Income (loss) from operations

(53,298,543)

12,716,867

Foreign exchange loss

(4,216,967)

(9,948,211)

Other income

6,362,935

Finance income

83,058

31,633

Finance costs

(6,260,366)

(5,172,039)

Loss before income taxes

(57,329,883)

(2,371,750)

Income tax expense (recovery):

Current

8,631,902

7,754,139

Deferred

905,536

(119,314)

9,537,438

7,634,825

Loss for the year

(66,867,321)

(10,006,575)

Other comprehensive income (loss):

Items that will not be reclassified to net income:

Actuarial gain (loss) on pension and non-pension
post-employment benefit plans, (net of income
tax (recovery) expense of nil (2015 – (nil))

(8,046,737)

775,936

Total comprehensive loss

$

(74,914,058)

$

(9,230,639)

Loss per common share:

Basic

$

(0.62)

$

(0.09)

Diluted

(0.62)

(0.09)

Weighted average number of common shares (note 16(b)):

Basic

108,481,143

109,111,052

Diluted

108,481,143

109,111,052

Redknee Solutions Inc.

Consolidated Statements of Cash Flows

(Expressed in U.S. dollars)

Years ended September 30, 2016 and 2015

2016

2015

Cash provided by (used in):

Operating activities:

Loss for the year

$

(66,867,321)

$

(10,006,575)

Adjustments for:

Depreciation of property and equipment

4,175,854

3,694,373

Amortization of intangible assets

9,442,492

7,189,337

Finance income

(83,058)

(31,633)

Finance costs

6,260,366

5,172,039

Income tax expense

9,537,438

7,634,825

Unrealized foreign exchange loss

2,378,887

6,284,482

Share-based compensation

3,150,239

3,539,364

Pensions

923,366

1,768,978

Provisions

15,885,750

(16,272,604)

Settlement of acquisition related liabilities

1,962,921

Change in non-cash operating working capital

34,795,821

(3,925,130)

19,599,834

7,010,377

Interest paid

(502,201)

(412,465)

Interest received

86,335

31,727

Income taxes paid

(11,805,732)

(7,392,374)

7,378,236

(762,735)

Financing activities:

Purchase of treasury stock

(536,507)

Purchase of shares under NCIB

(2,556,966)

Proceeds from exercise of stock options

249,768

231,106

Interest paid on loans and borrowings

(4,109,186)

(2,572,761)

Proceeds (repayment) of loans and borrowings

(6,800,000)

10,888,507

Transaction costs on loans and borrowings

(90,496)

(1,280,254)

(13,306,880)

6,730,091

Investing activities:

Purchase of property and equipment

(2,552,199)

(2,774,266)

Purchase of intangible assets

(41,318)

(941,171)

Decrease (increase) in restricted cash

1,389,794

(5,090,147)

Payment of settlement accrual and contingent consideration

(10,244,224)

(5,376,736)

Acquisition of businesses, net of cash acquired

(40,312,896)

(11,447,947)

(54,495,216)

Effect of foreign exchange rate changes
on cash and cash equivalents

(590,476)

(5,061,360)

Increase (decrease) in cash and cash equivalents

(17,967,067)

(53,589,220)

Cash and cash equivalents, beginning of year

55,047,577

108,636,797

Cash and cash equivalents, end of year

$

37,080,510

$

55,047,577

Redknee Solutions Inc.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

Twelve months ended

September 30,

September 30,

2016

2015

2016

2015

Net loss for the period

(14,683,255)

(4,432,334)

(66,867,321)

(10,006,575)

Add back / (subtract):

Depreciation of property and equipment

1,042,093

426,185

4,175,854

3,694,373

Amortization of intangible assets

2,228,364

2,221,280

9,442,492

7,189,337

Other income

(6,362,935)

(6,362,935)

Finance income

(18,904)

(16,147)

(83,058)

(31,633)

Finance costs

1,563,415

2,213,001

6,260,366

5,172,039

Income tax expense

4,567,748

2,867,610

9,537,438

7,634,825

Share-based compensation

1,078,515

403,240

3,150,239

3,539,364

Foreign exchange loss (gain)

3,597,168

3,062,814

4,216,967

9,948,211

Restructuring costs

6,248,485

(63,098)

35,184,661

1,095,454

Acquisition and related costs

3,715,000

1,000,539

4,838,371

6,212,222

Adjusted EBITDA

$

2,975,694

$

7,683,090

$

3,493,074

$

34,447,617

 

SOURCE Redknee Solutions Inc.